FFP’s Effects on Chelsea – A Glimpse of the Past, Present and Future

No one can take eyes off Chelsea FC when Financial Fair Play regulations are considered. But the truth is that we are on a path of recovery, and there are others whose situation is far worse than us. A brief analysis follows.

FFP – this mysterious three letter abbreviation has been echoing through the world of football for almost three years. Much has been said, and a lot has been heard about Financial Fair Play and it’s impact. This article just gives a glimpse of what’s happening round the corner with respect to Chelsea and other big spenders.

Financial Fair Play (FFP) makes up part of an extensive set of criteria clubs must comply with in order to be licensed to take part in UEFA’s club competitions, primarily the Champions League and Europa League.

FFP regulations were agreed in September 2009 with UEFA declared they had the following principle objectives:

• to introduce more discipline and rationality in club football finances
• to decrease pressure on salaries and transfer fees and limit inflationary effect
• to encourage clubs to compete with(in) their revenues
• to encourage long-term investments in the youth sector and infrastructure
• to protect the long-term viability of European club football
• to ensure clubs settle their liabilities on a timely basis

Whom all it effects?

Undoubtedly, the big spenders…..
Fortunately or, unfortunately, Chelsea is also a part of them. Such was the time when Roman took over the club in June 2003, and the club had to be built entirely from the scratch to aim for titles. For that funds needed to be there and the owner had it. Thanks to almighty, there was no FFP that time.

We won’t be in the same position as we are now if not for Roman’s money and desire. The world of business and the world of competition demands instant success and owners are not saints to invest to lose money, they are all pure businessmen. Viewing the flip side of the coin, one can hint that it can be Chelsea’s spending and their imminent successes which could have ultimately triggered the big spending eras of football. Inshort, the root can be traced back to us.

Rule book of FFP

The implementation of FFP came into effect from the summer of 2011 onwards. Starting from there, the first season where UEFA can take action on a club based on FFP was 2013/2014, and Malaga FC was banned from the subsequent Champions League for not having their finances in order

“Since then clubs that have qualified for UEFA competitions have to prove they do not have overdue payables towards other clubs, their players and social/tax authorities throughout the season. In other words, they have to prove they have paid their bills.

From the 2013-14 season, clubs also have had to make sure they comply with break-even requirements, which in principle means not to spend more than they earn. UEFA has installed the Club Financial Control Body (CFCB) to verify every year each club’s figures of the past two years put together, and as of 2014/15, they will look at the figures of the previous three years put together.

Are clubs no longer allowed to have losses?

To be exact, clubs can spend up to €5million more than they earn per assessment period (three years). However, it can exceed this level to a certain limit if it is entirely covered by a direct contribution/payment from the club owner(s) or a related party.

The limits are:• €45m for seasons 2013/14 and 2014/15• €30m for seasons 2015/16, 2016/17 and 2017/18

In the following years, the limit will be lower, with the exact amount still to be decided.

In order to promote investment in stadiums, training facilities and youth development, all such costs are excluded from the break-even calculation.”

– Source: UEFA.com

Where does Chelsea stand?

Chelsea Football Club has been never alien to monetary losses from the time Roman Abrahimovic took reign. Statistics proves that.

Image Source: A case study on FFP by Andrew Liam Macdonald!

As evident from the figure, Chelsea’s losses over the past 11-year period have been consistent, with only one exception in 2012 where a relatively small profit was recorded. That was mainly attributed to the income from our first ever champions league win in Munich.

But, things didn’t go as planned for the blues in the coming season as Chelsea was knocked out of the Champions League from the group stages itself. We were demoted to the Europa league the economic gains are considerably less. That season, Chelsea reported a loss of close to 50 million pounds.

Even though, UEFA allow clubs to lose around £37.5m over the first two years of FFP regulations, Chelsea were able to duck the FFP rules by showing 15 million pounds in spending on infrastructure projects and youth development at their Cobham headquarters. The following season’s i.e. the current season’s 300 million 10 year adidas deal and other brand endorsements helped us in clearing FFP regulations.

Other big spenders in the league include Real Madrid, PSG and Man City besides nouveau riche clubs like Anzhi and Monaco.

Anzhi , owned by billionaire Suleyman Kerimov, were buying players for massive wages and at the beginning of last season, they had to sell almost everyone of their high earners , with a justification that Club’s strategy has changed to a more longer term plan. It’s this kind of things that FFP tries to curb. Such playful activities when businessmen without any football experience come into the foray and start shelling out money just like it’s their Playstation’s Mock Manager challenge.

Even though Real Madrid’s spending can make anyone’s jaws to drop, their profits tell a different story. Real Madrid is a club of financial stability, and their profit margins have never really taken a hit. They have a well famed legacy and brand value and no matter how much they spend, their wage books are always well balanced in regards to their income.

And moreover, it’s not a one man owned club unlike Chelsea, ManCity and PSG. Clubs like Real Madrid and Manchester United are well-established global brands owing to their yesteryears and are able to fetch better sponsorship, ticket sales and broadcast deals. ManUtd’s £700million 10-year kit deal from Adidas(when compared to Chelsea’s £300m 10-year deal) itself is a proof for that. This gives them extra revenue that helps them in tackling FFP regulations easily.

We can’t really talk about the impacts of FFP on clubs without including these 2 giants, Manchester City and PSG, whose growth into the football as major teams were in a quick span with the financial backup they had in their billionaire owners. Their growth has been fast paced since their ownership transition in the later stages of 2009/2010.

When Roman took over Chelsea, he had nothing to fear about, no FFP, no stringent rules. He had the money to pump and the desire to make Chelsea a champion in all forms. That proved advantageous to us as we enjoyed seasons of rebuilding without getting monitored on the amount we had spent.

Things were a little different for clubs like PSG, Monaco and Man City. Their spending spree started close to FFP coming on, and If UEFA finds these clubs guilty of not following the regulations, then they are likely to get a fine close to £50/60 millions. Compounding to that hefty fine, they will also be forced to have a limit on the no, of players for CL from 25 to 21. Also, a wage cap on the Champions league squad which means a lot to ambitious clubs like them as they won’t be able to attract big money signings.

What the future holds for Chelsea?

Chelsea’s match ticket revenue is considerably less than their premier league rivals. Given the 42,000 stadium capacity of Stamford bridge, it’s far lesser in earnings when compared to other clubs in the same league as us such as Arsenal and Manchester United who both have stadiums which can accommodate upwards of 60,000 supporters.

This is where Chelsea could make a substantial investment for long term gain and not be constrained by Financial Fair Play regulations. As an investment in club infrastructure is not included in the break-even requirements, Chelsea may consider emulating Arsenal who built a new stadium in order to attract significantly higher levels of match day income

Another way of clearing players from the wage bill is our loaning strategy. Through this, the young players are getting sufficient game times and are cleared of the wage bills. If they are not found good enough to make into the first team squad, transfer market comes to the help, and they are cashed in.

When Jose came to Chelsea in his second season, he was given a challenge, unlike his first tenure – to operate with limited funds and wise use of transfer market so as to comply with FFP rules. He has accepted that and to be fair, he has done a tremendous work in the transfer markets.

He signed only three players, Schurrle, Willian and Van Ginkel in the summer of 2013. Sale of Mata(£37.1m) and De Bruyne(£16.5m) and subsequent investment in players like Salah and Matic proved profitable on and off the field. 2014 summer transfer market business of David Luiz(£50m) and Lukaku(£28m) was exceptional and cashing it immediately on Costa and Cesc Fabregas shows his shrewdness and vision for the future.

Jose removed Torres from the wage bill by sealing a two-year loan deal to AC Milan, who was having a significant £1,75,000 per week wages. Even though, deal of Torres was one to forget for us, but still it saves Chelsea with an estimated £16m pounds in the coming two years when his contract runs up.

Analyzing the current situation, we can say that Chelsea Football club is in safe hands. There is no doubt that we are heading in the right direction with a passionate owner in Roman and an extra hard working manager in Jose. We can hope that our club can attain financial stability at some point in the future. But there is a long way to go for it. But, whatever steps taken are worth applauding. We can hope for the best.